What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-13 · 228 added, 147 removed, 209 unchanged (64% of the section changed)

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Executive Overview

During the past year, the COVID-19 pandemic and related containment measures have resulted in dramatic shifts in most aspects of the economy and how professional and private lives are conducted.

The COVID-19 pandemic and related containment measures and the subsequent economic recovery have resulted in dramatic shifts in most aspects of the economy and how professional and private lives are conducted.

While the pace of change was unprecedented and the resulting impacts are still being determined, our Noble Purpose, “We connect people to work in ways that enrich their lives,” will continue to guide our strategy and actions.

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Kelly remains committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete.

By aligning ourselves with our Noble Purpose and executing against these behaviors, we have weathered the past year and are emerging as a more agile and focused organization, prepared to achieve new levels of growth and profitability as we further develop our portfolio of businesses.

By aligning ourselves with our Noble Purpose and executing against these behaviors, we have navigated the challenges of the past year and are emerging as a more agile and focused organization, prepared to achieve new levels of growth and profitability as we further develop our portfolio of businesses.

The Talent Solutions Industry

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and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as our Softworld, Inc.

subsidiary as of the beginning of the second quarter of 2021

("Softworld") subsidiary as of the beginning of the second quarter of 2021

• Education – delivers staffing, direct-hire and executive search services to the K-12, early childhood and higher education markets in the U.S., and includes several acquisitions:

Teachers On Call, Insight Workforce Solutions and Greenwood/Asher & Associates

• Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Business Process Outsourcing ("BPO") and Advisory Services to customers on a global basis

• Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Payroll Process Outsourcing ("PPO") and Advisory Services to customers on a global basis

• International – delivers staffing and direct-hire services in 15 countries in Europe, as well as Mexico

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Average days sales outstanding varies within and outside the U.S.

and was 60 days on a global basis as of the end of the first quarter of 2021 and 59 days as of the end of the first quarter of 2020.

and was 60 days on a global basis as of the end of the second quarter of 2021 and 64 days as of the end of 2020.

Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction.

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While far from certain, the impacts of COVID-19 on the global economy, the talent solutions industry, our customers and our talent have become clearer since the beginning of the pandemic.

During 2020 and into the first quarter of 2021, year-over-year revenue declines have been substantial while recent trends have pointed to a slow recovery in demand.

In response to the crisis, in April 2020 we took a series of proactive actions.

Beginning in mid-March 2020, our year-over-year revenues declined swiftly and substantially as governments and businesses reacted to the crisis.

In response, in April 2020 we took a series of proactive actions.

These actions were designed to reduce spending, minimize layoffs, and bolster the strength and flexibility of Kelly’s finances.

These actions included:

• a 10% pay cut for full-time salaried employees in the U.S., Puerto Rico and Canada, in addition to certain actions in Europe and Asia-Pacific;

• substantially reduced CEO compensation and reduced compensation of 10% or more for senior leaders;

• temporary furloughing and/or redeployment of some employees until business conditions improve;

• suspension of the Company match to certain retirement accounts in the U.S.

and Puerto Rico;

• reduction of discretionary expenses and projects, including capital expenditures;

• a hiring freeze with the exception of critical revenue-generating positions.

The actions generated substantial cost savings and allowed us the time necessary to assess the variety of impacts the crisis has had on our business.

These initial actions were intentionally broad in scope and became more targeted to the areas of business where demand declines have been more significant and persistent.

Actions such as the 10% pay cut, compensation adjustments for senior leaders and temporary furloughs were in place until early in the fourth quarter of 2020.

The suspension of the Company match to retirement accounts ended in January 2021 and others, such as reductions in discretionary spending, capital expenditures and carefully managing staffing levels in non-revenue generating positions, will continue.

These actions included salary reductions for full-time salaried employees, including reduced CEO and senior leader compensation, temporary furloughing and/or redeployment of some employees.

Our actions generated substantial cost savings and allowed us the time necessary to assess the variety of impacts the crisis had on our business.

Most actions were in place until early in the fourth quarter of 2020.

In addition, we benefited in 2020 from CARES Act provisions allowing deferral of employer social security tax payments.

In connection with expiration of the temporary cost reduction measures noted above, management reduced staffing levels to align with expected revenue levels and recorded restructuring charges of $4.4 million for severance and related benefits for impacted employees in the fourth quarter of 2020.

Given the level of uncertainty surrounding the duration of the COVID-19 crisis, Kelly’s board also voted to suspend the quarterly dividend in May 2020 and has continued to assess economic and business conditions to determine future actions with respect to our dividend policy.

The impact of the pandemic began in March 2020 with the limitations on public life in the U.S.

and the European markets we serve and has continued through the end of first quarter of 2021 as the effect of the pandemic response slowed global economic activity.

We expect that demand for our services will gradually recover from the economic slowdown and the effects of

customer and talent concerns related to operating safely during a pandemic.

The impact on the revenues of each segment will vary, given the differences in pandemic-related measures enacted in each geography, the customer industries served and the skill sets of the talent provided to our customers and their ability to work remotely.

We currently expect a gradual return to pre-crisis levels of customer demand, however, the pace of such a return may be delayed by repeated cycles of increased economic activity and subsequent disruption caused by a resurgence in infection leading to additional containment measures.

As 2021 progresses, we expect that our revenue will reflect a continued gradual improvement in demand and result in improvements in year-over-year gross profit and earnings from operations.

Given the level of uncertainty surrounding the duration of the COVID-19 crisis, Kelly’s board also voted to suspend the quarterly dividend in May 2020 and continued to assess economic and business conditions to determine future actions with respect to our dividend policy.

As of August 2021, the Board of Directors declared a dividend of $0.05 per share.

The negative market reaction to the COVID-19 crisis in March 2020 also resulted in a decline in our common stock price which caused our market capitalization to decline significantly at the end of the first quarter of 2020.

This triggered an interim goodwill impairment test and resulted in a $147.7 million non-cash goodwill impairment charge in the first quarter of 2020.

In the second quarter of 2021, as we anniversary the impacts of the crisis, revenues have returned to year-over-year growth.

In addition, our sequential quarter-over-quarter revenue growth points to a continuation of the recovery.

We expect that demand for our services will continue to gradually recover from the economic slowdown and the effects of customer and talent concerns related to operating safely during a pandemic.

The impact on the revenues of each segment will vary, given the differences in pandemic-related measures enacted in each geography, the customer industries served and the availability of the talent provided to our customers.

We are proactively taking steps to address talent shortages and mismatches in our businesses that were most impacted by the pandemic, including implementing new technologies, streamlining processes, adopting efficient recruiting models and collaborating with clients on innovative approaches to attract and retain talent.

We currently expect a gradual return to pre-crisis levels of customer demand;

however, the pace of such a return may be delayed if a resurgence in infections leads to additional disruption, containment measures or increased lack of available talent to match our customers’ demand.

2021 progresses, we expect that our revenue will reflect a continued gradual improvement in demand and result in continued improvements in year-over-year gross profit and earnings from operations.

Moving Forward

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We believe this specialty structure gives us greater advantages in the market, and we expect our disciplined focus to deliver profitable growth coming out of the crisis.

In addition, we intend to invest in strategic, targeted M&A opportunities in our specialties, while optimizing our portfolio, as demonstrated by the recent announcement of our acquisition of Softworld, Inc.

in the second quarter of 2021, the completed acquisition of Greenwood/Asher & Associates in the fourth quarter of 2020 and the sale of our operations in Brazil during the third quarter of 2020.

In addition, we intend to invest in strategic, targeted M&A opportunities in our specialties, while optimizing our portfolio, as demonstrated by the recent acquisition of Softworld in the second quarter of 2021, the acquisition of Greenwood/Asher & Associates in the fourth quarter of 2020 and the sale of our operations in Brazil during the third quarter of 2020.

Faced with market conditions that may continue to be uneven in the near term, Kelly continues to focus on accelerating the execution of our strategic plan and making necessary investments to advance that strategy.

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Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations divided by gross profit) are ratios used to measure the Company’s operating efficiency.

EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall operating performance.

NM (not meaningful) in the following tables is used in place of percentage changes where:

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(Dollars in millions)

First Quarter

2021 2020 % Change

Second Quarter June Year to Date

2021 2020 % Change 2021 2020 % Change

Revenue from services $ 1,258.1 $ 975.3 29.0 % $ 2,464.0 $ 2,236.4 10.2 %

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SG&A expenses excluding restructuring charges 217.3 178.3 21.8 420.0 389.1 7.9

Restructuring charges — 8.7 NM

Restructuring charges — (0.2) NM — 8.5 NM

Total SG&A expenses 217.3 178.1 21.9 420.0 397.6 5.6

Goodwill impairment charge — 147.7 NM

Gain on sale of assets — (32.1) NM

Goodwill impairment charge — — NM — 147.7 NM

Gain on sale of assets — — NM — 32.1 NM

Earnings (loss) from operations 13.7 11.1 24.1 24.3 (100.7) NM

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Income tax expense (benefit) (2.6) 0.9 (406.2) 7.9 (35.3) 122.2

Equity in net earnings (loss) of affiliate (1.1) (1.5) 29.7

Equity in net earnings (loss) of affiliate 1.7 (1.3) NM 0.6 (2.8) NM

Net earnings (loss) $ 24.0 $ 41.1 (41.6) % $ 49.6 $ (112.1) NM %

Gross profit rate 18.4 % 19.4 % (1.0) pts.

18.0 % 18.4 % (0.4) pts.

Conversion rate 5.9 5.8 0.1 5.5 (24.4) 29.9

First Quarter Results

Revenue from services in the first quarter declined 4.4% on a reported basis and 5.5% on a constant currency basis.

Revenue declined in the Professional & Industrial, Science, Engineering & Technology and Education segments, reflecting the continuing impact of the COVID-19 pandemic and resulting mitigation efforts.

Revenue increased in the Outsourcing & Consulting and International segments.

Revenue from staffing services declined 7.5% compared to the first quarter of 2020.

This decline was partially offset by a 2.5% increase in outcome-based services, as demand from customers utilizing these services increased during the quarter, and a 29.9% increase in permanent placement revenue, which is included in revenue from services.

Gross profit declined as a result of lower revenue volume.

The gross profit rate was flat year over year, as the impact of higher permanent placement income was offset by the negative impact of higher employee-related benefit costs.

Second Quarter Results

Revenue from services in the second quarter increased 29.0% on a reported basis and 26.2% on a constant currency basis, and reflects revenue increases in all operating segments.

Our acquisition of Softworld, a technology staffing and solutions firm, added approximately 310 basis points to the revenue growth rate.

Compared to the second quarter of 2020, revenue from staffing services increased 32.4% and revenue from outcome-based services increased 7.8%.

Permanent placement revenue, which is included in revenue from services, more than doubled from the prior year.

Gross profit increased 22.1% on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased primarily due to the impact of temporary government wage subsidies in the prior year, partially offset by the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates.

Decreases in the gross profit rate for Professional & Industrial, Education and Outsourcing & Consulting were partially offset by increases in the gross profit rate for Science, Engineering & Technology and International.

Permanent placement revenue, which is included in revenue from services and has very low direct costs of services, has a disproportionate impact on gross profit rates.

Total SG&A expenses increased 21.9% on a reported basis and 19.8% on a constant currency basis.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 460 basis points to the year-over-year increase.

The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of temporary expense mitigation efforts in the prior year.

Earnings from operations for the second quarter of 2021 totaled $13.7 million, compared to earnings from operations of $11.1 million in the second quarter of 2020.

Included in total earnings from operations is approximately $2.3 million, related to Softworld earnings from operations, inclusive of amortization of intangibles.

Earnings from operations increased in all operating segments, with the exception of Professional & Industrial.

Gain (loss) on investment in Persol Holdings represents the gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings.

The gains or losses fluctuate each quarter based on the quoted market price of the Persol Holdings common stock at period end.

Income tax benefit was $2.6 million in the second quarter of 2021 and income tax expense was $0.9 million for the second quarter of 2020.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in charges of $1.9 million and $9.0 million for the second quarter of 2021 and 2020, respectively.

The second quarter of 2021 had a benefit of $5.2 million from a change in United Kingdom tax rates, while the second quarter of 2020 had a benefit of $7.7 million from Brazil outside basis differences.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies.

It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation, and changes in the fair value of the Company’s investment in Persol Holdings, which are treated as discrete since they cannot be estimated.

The net earnings for the period were $24.0 million, compared to net earnings of $41.1 million from the second quarter of 2020.

This change was due primarily to lower gains on Persol Holdings common stock.

June Year-to-Date Results

Revenue from services in the first six months of 2021 increased 10.2% on a reported basis and 8.3% on a constant currency basis, and reflects revenue increases in all operating segments.

Our acquisition of Softworld in early April 2021 added approximately 140 basis points to the revenue growth rate.

Compared to the first six months of 2020, revenue from staffing services increased 9.2%, revenue from outcome-based services increased 5.1%, and permanent placement income increased 74.1%.

Gross profit increased 7.7% on higher revenue volume, partially offset by a decrease in the gross profit rate.

Decreases in the gross profit rate for Professional & Industrial and Outsourcing & Consulting were partially offset by increases in the gross profit rate for Science, Engineering & Technology, Education and International.

This variability in gross profit rates reflects shifts in customer and product mix, along with the impact of certain one-time costs associated with expected increases in customer demand in Professional & Industrial.

Total SG&A expenses decreased 7.7% compared to last year.

Included in SG&A expenses in the first quarter of 2020 was $8.7 million of restructuring charges.

The April 2021 acquisition of Softworld accounted for approximately 20 basis points.

Total SG&A expenses increased 5.6% compared to last year.

With the exception of Professional & Industrial, SG&A expenses in all segments increased in comparison to the prior year.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 210 basis points to the year-over-year increase.

The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of temporary expense mitigation efforts in the prior year.

Included in SG&A expenses in the first six months of 2020 was $8.5 million of restructuring charges.

Actions were taken in the first quarter of 2020 to position the Company to adopt the updated operating model and to align the U.S.

branch network facilities footprint with a more technology-enabled service delivery methodology.

Overall, SG&A expense reductions in all segments reflect management of expense levels in line with revenue trends.

During the first quarter of 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price.

During the first six months of 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price.

This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020.

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The main headquarters building was subsequently leased back by the Company during the first quarter of 2020.

Earnings from operations for the first quarter of 2021 totaled $10.6 million, compared to a loss from operations of $111.8 million in the first quarter of 2020.

Earnings from operations for the first six months of 2021 totaled $24.3 million, compared to a loss from operations of $100.7 million in the first six months of 2020.

The increase in earnings from operations from the prior year primarily reflects the impact of the goodwill impairment charge and restructuring charge in 2020, partially offset by the 2020 gain on sale of assets.

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The gains or losses fluctuate each quarter based on the quoted market price of the Persol Holdings common stock at period end.

Other expense for the first quarter of 2021 totaled $3.4 million, compared to other income of $1.7 million for the first quarter of 2020.

Included in the 2021 first quarter amount are transaction-related expenses from the April 2021 acquisition of Softworld, Inc., a technology staffing and solutions firm, and a one-time non-cash write-down of an equity investment.

Income tax expense was $10.5 million in the first quarter of 2021 and income tax benefit was $36.2 million for the first quarter of 2020.

The first quarter of 2021 includes tax expense of $9.2 million for the gain on the Company's investment in Persol Holdings.

The first quarter of 2020 includes a tax benefit of $23.0 million on the impairment of goodwill and a tax benefit of $23.8 million for the loss on the Company's investment in Persol Holdings.

The first quarter of 2020 benefit was partially offset by losses on tax exempt investments in life insurance policies and income from the sale of assets discussed in the Sale of Assets footnote.

Other expense for the first six months of 2021 totaled $3.7 million, compared to other income of $4.3 million for the first six months of 2020.

Included in the 2021 amount are transaction-related expenses from the April 2021 acquisition of Softworld and a one-time, non-cash write-down of an equity investment.

Income tax expense was $7.9 million in the first six months of 2021 and income tax benefit was $35.3 million for the first six months of 2020.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $11.1 million and a benefit of $14.8 million for June year to date 2021 and 2020, respectively.

June year to date 2020 includes a tax benefit of $23.0 million on the impairment of goodwill.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

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The first quarter of 2020 impairment of goodwill was treated as discrete.

The net earnings for the period were $25.6 million, compared to a net loss of $153.2 million from the first quarter of 2020.

This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, partially offset by a higher effective income tax rate.

The net earnings for the period were $49.6 million, compared to a net loss of $112.1 million from the first six months of 2020.

This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, net of tax.

Operating Results By Segment

(Dollars in millions)

First Quarter

2021 2020 % Change

(Dollars in millions)

Second Quarter June Year to Date

2021 2020 % Change 2021 2020 % Change

Revenue from Services:

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Consolidated Total $ 1,258.1 $ 975.3 29.0 % $ 2,464.0 $ 2,236.4 10.2 %

First Quarter Results

Professional & Industrial revenue from services decreased due primarily to decreases in the hours volume in our staffing businesses, which continue to be impacted by COVID-19, as talent supply constraints and internal fulfillment challenges have resulted in a gradual recovery rate.

These decreases were partially offset by increased revenue in our outcome-based businesses due to program expansions and increased permanent placement income in our staffing business.

Science, Engineering & Technology revenue from services decreased due to lower hours volume in our staffing business across most specialties due to the continued impact of COVID-19, except where we have experienced a steady demand for talent to support life sciences and clinical research.

The staffing decrease was partially offset by an increase in permanent placement income.

Education revenue from services decreased due primarily to the impact of COVID-19 as many districts continued to use virtual or hybrid instruction, reducing the historical demand for our Education services.

Outsourcing & Consulting revenue from services increased due primarily to the increase in revenue volume in our payroll processing outsourcing specialty.

International revenue from services increased 2.9% on a reported basis and decreased 1.1% in constant currency.

Second Quarter Results

Professional & Industrial revenue from services increased 14.8%, due primarily to an increase in the hours volume as customer demand improved in our staffing businesses as compared to last year, which was significantly impacted by COVID-19.

This increase was coupled with higher permanent placement income, partially offset by a decrease in revenue from our outcome-based services as customer demand declined.

Science, Engineering & Technology revenue from services increased 20.6% on a reported basis, which includes revenues from the acquisition of Softworld.

On an organic basis, the revenue growth was 8.3%, which was driven by hours volume increases in our staffing business across most specialties as customer demand increased compared to last year, which was impacted by COVID-19, coupled with increases in outcome-based services and permanent placement income.

Education revenue from services increased 322.1%, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In the second quarter of 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19, which decreases the demand for our services.

Outsourcing & Consulting revenue from services increased due primarily to the increase in hours revenue volume in our PPO specialty.

International revenue from services increased 31.6% on a reported basis and increased 21.6% in constant currency.

Year-over-year revenue comparisons were unfavorably impacted by the sale of our staffing operations in Brazil in August 2020.

Excluding Brazil, revenue increased 35.5% on a reported basis and 25.2% on a constant currency basis.

The increase was primarily due to higher hours volume, particularly in Mexico.

The increase was primarily due to higher hours volume, particularly in France, Portugal and Mexico.

June Year-to-Date Results

Professional & Industrial revenue from services increased 3.8%, due primarily to an increase in the hours volume as customer demand improved in our staffing businesses as compared to last year, which was significantly impacted by COVID-19.

This increase was combined with an increase in revenue from permanent placement income and our outcome-based services.

Science, Engineering & Technology revenue from services increased 6.8% on a reported basis, which includes revenues from the acquisition of Softworld.

On an organic basis the revenue growth was 1.0%, which was driven by hours increases in our staffing business across most specialties, coupled with an increase in permanent placement income.

Education revenue from services increased 29.8% reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In the first six months of 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Outsourcing & Consulting revenue from services increased 19.3% due primarily to increased hours volume in our PPO product and new customer wins in our RPO product.

International revenue from services increased 15.7% on a reported basis and increased 9.0% in constant currency.

Year-over-year revenue comparisons were unfavorably impacted by the sale of our staffing operations in Brazil in August 2020.

Excluding Brazil, revenue increased 19.5% on a reported basis and 12.6% on a constant currency basis.

The increase was primarily due to higher hours volume, particularly in France, Portugal and Mexico.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2021 2020 Change

(Dollars in millions)

Second Quarter June Year to Date

2021 2020 Change 2021 2020 Change

Gross Profit:

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Professional & Industrial 16.1 % 19.4 % (3.3) pts.

16.2 % 18.2 % (2.0) pts.

Science, Engineering & Technology 22.3 20.4 1.9 21.6 20.3 1.3

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Consolidated Total 18.4 % 19.4 % (1.0) pts.

First Quarter Results

Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume and a decline in the gross profit rate.

The gross profit rate decreased 100 basis points due to one-time costs associated with expected future volume increases in our contact center business, partially offset by the impact of an increase in permanent placement income this year.

Permanent placement revenue, which is included in revenue from services and has very low direct costs of services, has a disproportionate impact on gross profit rates.

The Science, Engineering & Technology gross profit declined as lower revenue volume was partially offset by a higher gross profit rate.

The gross profit rate increased 60 basis points due to increased permanent placement income, coupled with improved specialty mix.

Gross profit for the Education segment declined as a result of lower revenue volume, partially offset by an improved gross profit rate.

The gross profit rate increased 110 basis points due primarily to higher permanent placement fee income and lower employee-related costs, partially offset by the impact of unfavorable customer mix.

18.0 % 18.4 % (0.4) pts.

Second Quarter Results

Gross profit for the Professional & Industrial segment decreased due to a decline in the gross profit rate, partially offset by higher revenue volume.

In comparison to the prior year, the gross profit rate decreased 330 basis points.

This decrease reflects the unfavorable year-over-year impact of government wage subsidies, increased costs associated with our outcome-based services, and a shift in product mix compared to the prior year as demand for staffing services increased.

These decreases were partially offset by the impact of increased permanent placement income this year.

The Science, Engineering & Technology gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 190 basis points due to increased permanent placement income, coupled with improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins.

Gross profit for the Education segment increased on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased 130 basis points due primarily to the unfavorable year-over-year impact of government wage subsidies, partially offset by an increase in permanent placement income from Greenwood/Asher, our acquisition in late 2020.

The Outsourcing & Consulting gross profit increased on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased by 70 basis points primarily due to a change in product mix within this segment.

The gross profit rate decreased 240 basis points primarily due to a change in product mix within this segment, as PPO revenues increased.

International gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 20 basis points primarily due to customer mix, partially offset by lower permanent placement income.

The gross profit rate increased 110 basis points primarily due to customer mix and higher permanent placement income.

June Year-to-Date Results

Gross profit for the Professional & Industrial segment decreased due to a decrease in the gross profit rate, partially offset by higher revenue volume.

In comparison to the prior year, the gross profit rate decreased 200 basis points.

These decreases were partially offset by the impact of increased permanent placement income this year.

The Science, Engineering & Technology gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 130 basis points due to increased permanent placement income, coupled with improved specialty mix, including the acquisition of Softworld in April 2021.

Gross profit for the Education segment increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 90 basis points due primarily to higher permanent placement income from Greenwood/Asher, our acquisition in late 2020.

This increase was partially offset by the unfavorable year-over-year impact of government wage subsidies.

The Outsourcing & Consulting gross profit increased on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased 150 basis points primarily due to a change in product mix within this segment as PPO revenues increased.

International gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 60 basis points primarily due to customer mix.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2021 2020 % Change

(Dollars in millions)

Second Quarter June Year to Date

2021 2020 % Change 2021 2020 % Change

SG&A Expenses:

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Consolidated Total $ 217.3 $ 178.1 21.9 % $ 420.0 $ 397.6 5.6 %

First Quarter

2021 2020 % Change

(Dollars in millions)

Second Quarter June Year to Date

2021 2020 % Change 2021 2020 % Change

Restructuring Charges Included in SG&A Expenses:

Professional & Industrial $ — $ 4.4 NM %

Science, Engineering & Technology — 0.5 NM

Education — 0.9 NM

Outsourcing & Consulting — — NM

International — 1.1 NM

Corporate expenses — 1.8 NM

Consolidated Total $ — $ 8.7 NM %

First Quarter Results

Total SG&A expenses in Professional & Industrial decreased 13.8%, or 8.8% excluding restructuring charges, due primarily to lower salaries and related costs from cost management actions and initiatives taken to mitigate the impact of lower revenue volume as a result of the COVID-19 disruption, coupled with the impact of the restructuring actions taken in the first quarter of last year prior to the impact of COVID-19.

Total SG&A expenses in Science, Engineering & Technology decreased 2.1% in total from a year ago and decreased 0.7% excluding last year’s restructuring charges.

This reduction was due primarily to lower travel and non-salary related sales costs due to continued COVID-19 disruption.

Total SG&A expenses in Education decreased 14.5%, or 9.6% excluding restructuring charges, due primarily to lower salaries and related costs as a result of cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in Outsourcing & Consulting decreased 0.6%.

This reduction was due primarily to lower travel and non-salary related sales costs due to continued COVID-19 disruption.

Total SG&A expenses in International decreased 0.4% on a reported basis and decreased 5.2% on a constant currency basis.

Excluding the restructuring charge in the first quarter of 2020, expenses decreased 2.1% on a constant currency basis.

Expenses were lower as a result of cost management, combined with the impact of the sale of staffing operations in Brazil in August 2020.

Corporate expenses decreased 9.5% due primarily to lower employee-related costs and the 2020 restructuring charges, partially offset by higher incentive-based compensation.

Professional & Industrial $ — $ — NM % $ — $ 4.4 NM %

Science, Engineering & Technology — — NM — 0.5 NM

Education — (0.1) NM — 0.8 NM

Outsourcing & Consulting — — NM — — NM

International — — NM — 1.1 NM

Corporate expenses — (0.1) NM — 1.7 NM

Consolidated Total $ — $ (0.2) NM % $ — $ 8.5 NM %

Second Quarter Results

Total SG&A expenses in Professional & Industrial increased 6.9% from the prior year.

Year-over-year comparisons were impacted by temporary expense mitigation actions taken in the second quarter of 2020 as a result of lower revenue volume due to the COVID-19 disruption.

This increase was combined with an increase in performance-based incentive compensation as compared to the prior year.

Total SG&A expenses in Science, Engineering & Technology increased 49.7% from the prior year, and includes the impact of the acquisition of Softworld in the second quarter of 2021.

On an organic basis, SG&A expenses increased 23% from the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in the second quarter of 2020 as a result of lower revenue volume due to the COVID-19 disruption.

These increases were combined with higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation.

Total SG&A expenses in Education increased 60.5% from the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in the second quarter of 2020 to mitigate the impact of the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in Outsourcing & Consulting increased 19.7% from the prior year.

These increases were combined with an increase in performance-based incentive compensation.

Total SG&A expenses in International increased 22.3% on a reported basis and increased 13.3% on a constant currency basis.

Expenses were higher as a result of higher salary-related expenses due to increased headcount, mainly in our branch network.

Corporate expenses increased 10.7% due primarily to higher performance-based incentive compensation.

June Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 4.6%, or 1.7% excluding restructuring charges, due primarily to reduced facilities expense as we continue to evaluate and reduce our branch footprint in the U.S.

This decrease was partially offset by an increase in salaries and performance-based incentive compensation as compared to the prior year.

Total SG&A expenses in Science, Engineering & Technology increased 21.8%, or 22.8% excluding restructuring charges.

Excluding restructuring charges and the acquisition of Softworld, SG&A expenses increased 10.3%.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in response to the COVID-19 disruption in 2020.

These increases were combined with higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation.

Total SG&A expenses in Education increased 12.9%, or 16.8% excluding restructuring charges.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in 2020 in response to the COVID-19 disruption.

Total SG&A expenses in Outsourcing & Consulting increased 8.9% in comparison to the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense actions taken in 2020 in response to the impact of the COVID-19 disruption.

Total SG&A expenses in International increased 10.1% on a reported basis and increased 3.3% on a constant currency basis.

Excluding the restructuring charges, expenses increased 5.1% on a constant currency basis.

Expenses were higher primarily due to increases in performance-based incentive compensation.

Corporate expenses were flat in comparison to the prior year.

Lower restructuring and long-term disability costs were offset by higher performance-based incentive compensation.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2021 2020 % Change

(Dollars in millions)

Second Quarter June Year to Date

2021 2020 % Change 2021 2020 % Change

Earnings (Loss) from Operations:

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Science, Engineering & Technology 19.6 19.3 1.8 37.1 37.5 (1.1)

Education 3.0 3.8 (21.2)

Outsourcing & Consulting 2.9 0.2 NM

International 2.6 1.1 135.1

Education 1.5 (5.2) NM 4.5 (1.4) NM

Outsourcing & Consulting 4.7 4.1 16.2 7.6 4.3 78.9

International 3.1 (2.1) NM 5.7 (1.0) NM

Corporate (21.4) (19.3) (10.7) (43.3) (159.0) 72.8

Consolidated Total $ 13.7 $ 11.1 24.1 % $ 24.3 $ (100.7) NM %

First Quarter Results

Professional & Industrial reported earnings of $6.5 million for the quarter, a 42.3% increase from a year ago.

The increase in earnings was primarily due to decreased expenses of $11.1 million described above, partially offset by the lower staffing services volumes and one-time costs in the call center business.

Science, Engineering & Technology reported earnings of $17.5 million for the quarter, a 4.2% decrease from a year ago.

The decrease in earnings was primarily due to the impact of COVID-19 on our operations, partially offset by the cost management initiatives taken to mitigate its impact.

Education reported earnings of $3.0 million for the quarter, a 21.2% decrease from a year ago.

The decrease was primarily due to the impact of COVID-19 on our operations, partially offset by the cost management initiatives taken to mitigate its impact.

Outsourcing & Consulting reported earnings of $2.9 million for the quarter, compared to earnings of $0.2 million a year ago.

Second Quarter Results

Professional & Industrial reported earnings of $6.2 million for the quarter, a 57.0% decrease from a year ago.

The decrease in earnings was primarily due to the year-over-year impact of the government wage subsidies we received in the second quarter of 2020 and increased costs of services reducing our gross profit rate in our outcome-based products, as well as increasing expenses.

These were partially offset by increased revenues in our staffing product and an increase in our permanent placement income.

Science, Engineering & Technology reported earnings of $19.6 million for the quarter, a 1.8% increase from a year ago.

The increase in earnings was primarily due to the impact of the Softworld acquisition, coupled with increases in organic staffing and permanent placement revenues in most of our specialties within the SET business unit.

These increases were partially offset by increases in certain expenses, including those related to additional full-time employees and increased performance-based incentive compensation.

Education reported earnings of $1.5 million for the quarter, compared to a loss of $5.2 million a year ago.

The change was primarily due to the increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Outsourcing & Consulting reported earnings of $4.7 million for the quarter, a 16.2% increase from a year ago.

The increase in earnings was primarily due to the impact of increased revenue volumes within the segment.

International reported earnings of $2.6 million for the quarter, compared to earnings of $1.1 million a year ago.

The increase in earnings was primarily due to the year-over-year impact of restructuring charges incurred in the first quarter of 2020.

International reported earnings of $3.1 million for the quarter, compared to a loss of $2.1 million a year ago.

The increase in earnings was primarily due to improving revenue across both Europe and Mexico.

June Year-to-Date Results

Professional & Industrial reported earnings of $12.7 million, a 32.9% decrease from a year ago.

These were partially offset by increased revenues in our staffing product and an increase in our permanent placement income.

Science, Engineering & Technology reported earnings of $37.1 million, a 1.1% decrease from a year ago.

The decrease in earnings was primarily due to higher expenses related to performance-based incentive compensation and higher salaries due to investment in additional sales and recruiting resources, which exceeded revenue and gross margin growth.

This was partially offset by earnings from Softworld, which was acquired in April 2021.

Education reported earnings of $4.5 million, compared to a loss of $1.4 million a year ago.

The increase was primarily due to an increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Outsourcing & Consulting reported earnings of $7.6 million, a 78.9% increase compared to a year ago.

The increase in earnings was primarily due to the impact of increased revenue volumes within the segment.

International reported earnings of $5.7 million, compared to a loss of $1.0 million a year ago.

The increase in earnings was primarily due to improving revenue across both Europe and Mexico.

Financial Condition

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however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period.

The impact of the current economic slow-down resulting from the COVID-19 crisis began in March 2020 and continued during the first quarter of 2021.

The impact of the current economic slow-down resulting from the COVID-19 crisis began in March 2020.

While we have yet to return to pre-crisis revenue levels, we are seeing continued economic momentum and sustainable recovery in the second quarter of 2021.

As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components:

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Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash totaled $245.2 million at the end of the first quarter of 2021 and $228.1 million at year-end 2020.

As further described below, we generated $10.5 million of cash from operating activities, generated $7.9 million of cash from investing activities and generated $0.1 million of cash from financing activities.

Cash, cash equivalents and restricted cash totaled $70.7 million at the end of the second quarter of 2021 and $228.1 million at year-end 2020.

As further described below, we generated $47.6 million of cash from operating activities, used $201.7 million of cash for investing activities and used $1.0 million of cash for financing activities.

Operating Activities

In the first three months of 2021, we generated $10.5 million of net cash from operating activities, as compared to generating $8.4 million in the first three months of 2020, due to recurring working capital changes.

Trade accounts receivable totaled $1.3 billion at the end of the first quarter of 2021.

Global DSO was 60 days at the end of the first quarter of 2021, 64 days at year-end 2020 and 59 days at the end of the first quarter of 2020.

In the first six months of 2021, we generated $47.6 million of net cash from operating activities, as compared to generating $178.1 million in the first six months of 2020, primarily due to increased working capital requirements as revenue levels continue to recover or surpass pre-COVID levels in certain segments.

Trade accounts receivable totaled $1.4 billion at the end of the second quarter of 2021.

Global DSO was 60 days at the end of the second quarter of 2021, 64 days at year-end 2020 and 61 days at the end of the second quarter of 2020.

The decrease since year-end 2020 reflects the collection of receivables from several large customers who were carrying higher balances due to customer-driven administrative issues at year end.

Our working capital position (total current assets less total current liabilities) was $632.7 million at the end of the first quarter of 2021, an increase of $8.7 million from year-end 2020.

Excluding additional cash, working capital declined $7.7 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.7 at the end of the first quarter of 2021 and at year-end 2020.

Our working capital position (total current assets less total current liabilities) was $455.4 million at the end of the second quarter of 2021, a decrease of $168.6 million from year-end 2020.

Excluding the decrease in cash, working capital declined $10.0 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.4 at the end of the second quarter of 2021 and 1.7 at year-end 2020.

Investing Activities

In the first three months of 2021, we generated $7.9 million of cash from investing activities, as compared to generating $15.9 million in the first three months of 2020.

Included in cash from investing activities in the first three months of 2021 is $10.4 million of proceeds from company-owned life insurance.

Included in cash from investing activities in the first three months of 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction.

This was partially offset by $36.3 million of cash used for the acquisition of Insight in January 2020, net of the cash received.

In the first six months of 2021, we used $201.7 million of cash for investing activities, as compared to generating $13.3 million in the first six months of 2020.

Included in cash used for investing activities in the first six months of 2021 is $219.0 million of cash used for the acquisition of Softworld in April 2021, net of cash received.

Included in cash from investing activities in the first six months of 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction.

This was partially offset by $36.4 million of cash used for the acquisition of Insight in January 2020, net of the cash received and including working capital adjustments.

Financing Activities

In the first three months of 2021, we generated $0.1 million of cash from financing activities, as compared to using $4.6 million in the first three months of 2020.

In the first six months of 2021, we used $1.0 million of cash for financing activities, as compared to using $6.2 million in the first six months of 2020.

The change in cash from financing activities was primarily related to the year-over-year change in dividend payments.

Dividends paid per common share were $0.075 in first three months of 2020, while no dividends were paid in the first three months of 2021.

Dividends paid per common share were $0.075 in first six months of 2020, while no dividends were paid in the first six months of 2021.

Changes in net cash from financing activities are also impacted by short-term borrowing activities.

Debt totaled $1.1 million at the end of the first quarter of 2021 and was $0.3 million at year-end 2020, and represented local borrowings in both periods.

Debt totaled $0.1 million at the end of the second quarter of 2021 and was $0.3 million at year-end 2020, and represented local borrowings in both periods.

Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and leverage of the Company.

Our ratio of debt-to-total capital was 0.1% at the end of the first quarter of 2021 and 0.0% at year-end 2020.

The change in short-term borrowings in the first three months of 2021 was primarily due to borrowings on local lines of credit.

The change in short-term borrowings in the first three months of 2020 was primarily due to payments on local lines of credit.

Our ratio of debt-to-total capital was 0.0% at the end of the second quarter of 2021 and at year-end 2020.

The change in short-term borrowings in the first six months of 2021 and the first six months of 2020 was primarily due to payments on local lines of credit.

New Accounting Pronouncements

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To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies.

During 2021, cash generated from operations will continue to be supplemented by recent enactment of laws providing COVID-19 relief, most notably the Coronavirus Aid, Relief, and Economic Security Act which allows for the deferral of payments of the Company's U.S.

social security taxes.

During 2020, cash generated from operations was supplemented by the deferral of payments of the Company's U.S.

social security taxes as allowed by the Coronavirus Aid, Relief, and Economic Security Act.

Such deferrals are required to be repaid by the end of 2021 and 2022.

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As part of those reviews, we may identify cash that we feel should be repatriated to optimize the Company’s overall capital structure.

As of the 2021 first quarter end, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances.

As of the end of the second quarter of 2021, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances.

We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth.

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This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash.

As of the end of the first quarter of 2021, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $97.0 million of available capacity on our $150.0 million securitization facility.

As of the second quarter of 2021, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $97.0 million of available capacity on our $150.0 million securitization facility.

The securitization facility carried no short-term borrowings and $53.0 million of standby letters of credit related to workers’ compensation.

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While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly from our current expectations, we may need to seek additional sources of funds.

As of the end of the first quarter of 2021, we met the debt covenants related to our revolving credit facility and securitization facility.

As of the end of the second quarter of 2021, we met the debt covenants related to our revolving credit facility and securitization facility.

We have historically managed our cash and debt closely to optimize our capital structure.

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Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities.

We believe that we may utilize a portion of our existing cash balances to fund working capital requirements over the next several quarters if demand for our services continues to increase and to pay 50% of deferred payroll tax balances which are due in the fourth quarter of 2021.

We believe that we may utilize a portion of our existing cash balances to fund working capital requirements over the next several quarters if demand for our services continues to increase and to pay the deferred payroll tax balances in which 50% are due in the fourth quarter of both 2021 and 2022.

We monitor the credit ratings of our major banking partners on a regular basis and have regular discussions with them.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis